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Wall Street faces N.Y. probe on ratings data

by Annalyn Censky, staff reporterMay 13, 2010: 9:39 PM ET

NEW YORK (CNNMoney.com) -- New York Attorney General Andrew Cuomo is launching an investigation into some of Wall Street's top firms to determine whether they provided misleading information to credit rating agencies.

A total of eight firms are part of the probe, including Goldman Sachs, Morgan Stanley, Deutsche Bank, Credit Suisse (CS), Citigroup, UBS, Credit Agricole and Merrill Lynch, which has since been acquired by Bank of America (BAC, Fortune 500).

Cuomo's office confirmed that it is launching the investigation, which was initially reported by The New York Times, but would not comment further.

Bank of America spokesman Bill Halldin said the bank is "cooperating with the attorney general's office on this matter," and Credit Agricole released a statement confirming it too is part of the investigation and will cooperate with authorities. Credit rating agency Fitch said it also plans to cooperate in the investigation.

Goldman Sachs, UBS and Citigroup declined to comment. Spokespeople for the other institutions named were not immediately available.

Critics have repeatedly suggested that the relationship between Wall Street firms and the credit rating agencies was a key factor contributing to the economic meltdown.

Hungry for business, rating agencies assigned top marks to securities issued by banks that would eventually turn toxic. Financial firms, on the other hand, would employ a wide variety of techniques to get higher ratings on their investment products, according to the critics.

Critics have long grumbled that the rating agencies were also slow to lower the debt ratings for troubled financial firms and warn of the risks of bonds and other securities tied to subprime mortgages.

A separate report published Thursday revealed that federal prosecutors are expanding a criminal probe into whether big banks misled investors about their participation in mortgage-bond deals, according to the Wall Street Journal.

The newspaper, citing a person familiar with the matter, said JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500), Deutsche Bank (DB) and UBS (UBS) have received civil subpoenas from the Securities and Exchange Commission.

They join fellow Wall Street firms Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), which are believed to be under the scrutiny by U.S. prosecutors and regulators.

The paper said the U.S. Attorney's office in New York and the SEC are working together to see whether these firms made proper disclosures when they created and sold complex investments tied to home loans, better known as collateralized debt obligations, or CDOs.

The U.S. Attorney's office in New York declined to comment on the Journal report, as did Citigroup and UBS. Spokespeople for the other institutions named in the story were not immediately available.

The reports of the widening criminal probes of Wall Street banks weighed on bank shares Thursday. Most of the companies were trading lower.

Goldman shares are down about 22% since the SEC filed fraud charges against it last month.

Morgan Stanley shares tumbled Wednesday when reports that it was being investigated first surfaced, but the stock pared losses and ended the day just 2% lower. Shares were slightly higher Thursday.

-- CNNMoney.com's David Ellis and Grace Wong contributed to this story.